Crypto-assets and cryptocurrencies are global paradigms and by banning them in India they cannot be wished away.
The way the crypto ecosystem has grown in India, has been just a remarkable example of a success story. The interest of Indians in crypto is growing with each passing day. From the days of demonetization when Bitcoin was at a low level till its subsequent high levels, we have seen a massive increase in the value, pricing and the speculative price structure of crypto ecosystem.
More and more cryptocurrencies are hitting the market. Cryptocurrencies have appealed to the imagination of the Indian investor. More and more people have begun to start investing in the crypto ecosystem. This is also apparent from the recent figures in the public domain. However, the fact is that India needs to specifically focus on the legal and policy frameworks pertaining to crypto-assets and cryptocurrencies.
At the time of writing, India does not have any dedicated legal and policy framework on cryptocurrencies and crypto-assets. The only legislation that India has pertaining to the digital format is Information Technology Act, 2000, which is India’s cyberlaw.
This Indian legislation is important as it deals with all aspects pertaining to data and information in the electronic form. Further, this legislation is a special legislation and the provisions of the same prevail over anything inconsistent therewith, contained in any other law for the time being in force.
However, the legislation and its amendments by virtue of the Information Technology (Amendments) Act, 2008 do not mention about Bitcoins or Blockchains. In fact, this legislation is more than 20 years old and it has been more than 13 years since it was last amended. The last one decade has seen the maximum growth of cryptocurrencies and crypto-assets.
The Reserve Bank of India (RBI) circular withdrawing banking services to entities engaging in crypto-assets and cryptocurrencies was met with a stiff legal challenge. Ultimately, the Supreme Court of India set aside the circular of the Reserve Bank of India (RBI) but upheld the role of Reserve Bank of India (RBI) in regulating aspects pertaining to cryptocurrencies.
Since then, there has been relative silence as far as Indian policymaking is concerned on crypto-assets and cryptocurrencies. Now there is news that the Reserve Bank of India (RBI) is coming up with its own Indian digital currency. However, India needs to take a legal stand as to what should be the approach on regulating crypto-assets and cryptocurrencies. Consequently, we realise that there is a policy vacuum in India in this regard.
At the time of writing, the Cryptocurrency Bill is slated to be presented in Parliament in its current Winter Session. Initially, there was a thought process that India would want to ban all private cryptocurrencies. However, recent reports suggest that there is now a shift in the thought process of the Government to leave the issue of banning crypto-assets behind and come up with a more enabling framework.
That is a correct step in the correct direction. We need to appreciate that banning crypto-assets and cryptocurrencies is not a legal and pragmatic option. This is because crypto-assets and cryptocurrencies are global paradigms and by banning them in India they cannot be wished away.
Further, India needs to avoid taking an ostrich approach on policy-making on crypto-assets. A better approach will be to consider the various crypto properties as crypto-assets and then deal with their enabling regulations.
Some foundations from Indian cyberlaw could be made as foundational building blocks for the further subsequent minimal enabling regulation of Blockchain. India does not need to reinvent the wheel.
A number of other countries have already had distinctive experience in legislating on various issues of Blockchain and Bitcoins. For example, Malta is known as the Blockchain Island of the world. It already has three dedicated legislations on Blockchains and clearly has its own distinctive legislative experience in regulating Blockchains.
Further, Belarus also had a distinctive legislation on crypto-assets and has come up with its own mechanism of regulating crypto-assets. India could learn from not just Malta and Belarus but also from experiences in Estonia and Switzerland in coming up with its own customised legal approaches on crypto-assets and cryptocurrencies.
I understand the hesitancy in India on recognising cryptocurrencies. However, there is no bar on the Government of India to legally regulate crypto-assets in an enabling manner. India needs to realise that the Blockchain and crypto ecosystem is going to play an important role in further propelling the growth of the Indian economy. Rather than closing our eyes on such an emerging phenomenon, it will be much better if India adopts a holistic approach on crypto regulation.
However, over regulation or over-killing is a phenomenon that India needs to avoid studiously. In what manner will this process of regulation of the crypto-assets evolve in India, will largely depend on how the Government of India views the potential growth of the crypto ecosystem in India.
This is a very interesting space to watch as Government comes up with new legal frameworks and legal initiatives concerning the crypto ecosystem in India.
Dr Pavan Duggal, Advocate, Supreme Court of India, is an internationally renowned expert authority on cyberlaw and cybersecurity law. He is also the Chairman of International Commission on Cybersecurity Law. You can reach him at pavan@pavanduggal.com. www.pavanduggal.com